Mortgage Confidential: Mortgage broker vs. banker

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Which is the better choice, a mortgage broker or a mortgage banker? First, let's dig a little deeper and find out exactly what each of these terms mean.

A mortgage broker does not lend money nor make a mortgage but instead finds a mortgage from other lenders on behalf of their client, the buyer. A mortgage banker places a mortgage directly to the buyer from its own funds. Does that make the mortgage broker more expensive?

No, because the mortgage broker has access to other mortgage company's loans at a discount, mark them up to "retail" and can compete with any direct lender. Much like an independent insurance agent who shops around for the best deal. In fact, that's an advantage mortgage brokers tout...having the ability to shop for the best deal. A mortgage banker can't shop around, they use the interest rates and fees set by their company. So if the broker can shop around for the best deal, isn't the broker the better choice? Not necessarily.

Mortgage rates from one company to the next can't be all that far apart because lenders price their 30 year fixed rate mortgage on the very same index. One lender can't be at 5.00% while everyone else is at 5.50% for instance. There is no secret lender who has the best mortgage rate.

Mortgage bankers have an advantage simply by having more control over the loan process. When there's a mistake or a problem, the banker fixes it internally. When a loan goes through a mortgage broker and there is a mistake or a problem, the problem takes longer to resolve simply because there are more channels that problem must go through. I know these things because I started out as a mortgage broker in California and am now a mortgage banker in Texas.

It used to be said that a mortgage broker can also find a lender that will make a "special" mortgage perhaps for those with damaged credit or hard to prove income. While that was the case maybe a year ago the fact is that there are very few differences in mortgages today. What a broker has, a banker has.

So which is better? Neither is better, both have their advantages. The trick is finding a loan officer you can trust to guide you through the mortgage process at competitive rates, regardless of their moniker.